Farm bill passage puts decisions on farmers

Now that the 2014 farm bill is reality, producers must transition from wondering when or if a farm bill will pass and what will be included to a more up close and personal scrutiny of the varied—and sometimes complex—aspects of the final law.

Much remains to be done before farmers even know what the final rules will be, and no one is certain when the Farm Service Agency (FSA) will be ready to implement those rules. Fall seems a good guess, some observers say.

But it’s not too early to start thinking about some of the bigger options, says Texas AgriLife Extension economist-management Jason Johnson, Stephenville.

Johnson, speaking at the grain session of the 52nd Annual Blackland Income Growth Conference, said some aspects of the law could have significant effects, not only on individual safety net options but also on land lease structure, land prices and farm loans.

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“We need to look at the possibilities in the new farm bill,” Johnson said just minutes before the Senate passed the bill and sent it to President Obama for his signature and enactment of a law that has been nearly five years in the making.

Johnson said farmers have two options to consider up front: price loss coverage (PLC) or average risk coverage (ARC). “Farmers have a one-time irrevocable opportunity to choose one or the other,” he said, so the decision should be made only after close study of farm enterprise, risks and management goals.

The ARC program offers either a county level or an individual loss benchmark. “And different crops may be enrolled in different programs,” Johnson said. One crop could be enrolled in PLC and others could be enrolled in ARC.

Farmers who choose ARC and select the individual coverage rather than the county average will be covered at 65 percent of base rather than 85 percent with the county average benchmark. The benchmark is developed through a county Olympic average for yield and price. Numbers for the last five years, minus the high and low, and averaging the remaining three provide the basis. “Multiple the average yield times the average price for the benchmark,” Johnson said.

Also available through the Title 11 crop insurance offering is a “shallow loss,” supplemental coverage option (SCO) to cover gaps in farm bill options.

Cotton farmers have the STAX option. Also, the supplemental agriculture disaster assistance program is now permanent, a win for livestock producers. Market loans and deficiency payments also remain “about the same.”

Johnson said elimination of the direct payment could have a significant effect on land lease arrangements. “Over the past few months we have received a lot of calls for sample forms for flexible cash lease options that could be adjusted based on prices. The new farm bill may change the structure of land rent decisions.

“Lenders also will have a say, Johnson added. “Lenders typically hate group risk policies.”

Johnson said individual farmers should pay close attention to specific crops and the options available in the farm bill and suggests they consult a Texas AgriLife website to access a decision tool that will soon be available: http://agecoext.tamu.edu.

He said for most grain farmers, the ARC seems to be the best option. PLC seems best for peanuts.

Johnson also said the farm bill breaks new ground as far as providing a farm safety net. “The farm bill is no longer a safety net,” he said. “Farmers will get the safety net from crop insurance and marketing plans.”